G.R. No. L-18817, September 28, 1964
ANTONIO G. TADY-Y, petitioner-appellant, vs. PHILIPPINE NATIONAL BANK, Binalbagan Branch, and PROVINCIAL SHERIFF OF NEGROS OCCIDENTAL, respondent-appellees.

FACTS

On February 2, 1951, Segundo Swansing, acting for himself and as attorney-in-fact for Salvador Cabasaan and Rebecca Swansing, obtained an agricultural loan of P840 from the Philippine National Bank (PNB) and mortgaged a parcel of land to secure it. The mortgage deed, duly registered, contained a clause stating it secured the P840 loan “as well as those that the Mortgagee may extend to the Mortgagor, including interest and expenses or any other obligation… as appears in the accounts, books and records of the Mortgagee.” On April 30, 1955, the same mortgagors constituted a second mortgage on the same property in favor of Marcelo G. Aguirre, which was later assigned to petitioner Antonio G. Tady-Y on December 5, 1957.
The mortgagors defaulted on their obligations to PNB, prompting the bank to extrajudicially foreclose the first mortgage. The property was sold at public auction on January 31, 1958, with PNB as the purchaser for P5,093.45. Tady-Y, as assignee of the second mortgage, demanded from PNB and the Provincial Sheriff the sum of P2,868 from the surplus of the auction sale, claiming the sale price far exceeded the PNB’s registered credit of P840 plus interest. The respondents refused, contending the mortgagors’ total outstanding obligation to PNB as of the foreclosure date, including subsequent crop loans, amounted to P9,579.08, leaving no surplus.

ISSUE

Whether the proceeds from the extrajudicial foreclosure sale should first be applied only to the specifically registered P840 loan, or to all obligations of the mortgagors to PNB as stipulated in the expansive mortgage clause, thereby potentially extinguishing any surplus for the second mortgagee.

RULING

The Supreme Court affirmed the dismissal of the petition for mandamus, ruling that no surplus existed for the second mortgagee. The legal logic centers on the principle that the extent of a mortgage lien is governed by the stipulations in the contract, not merely by the specific amount annotated on the title. The mortgage deed explicitly secured not only the initial P840 loan but also future extensions and other obligations recorded in the bank’s books. This stipulation was binding and proper, as established in Lim Julian v. Lutero, where the Court held that a mortgage can secure future indebtedness if such intent is clear from the instrument.
The Court rejected Tady-Y’s argument that only the P840 loan affected the property because it was the only amount noted on the certificate of title. The annotation on the title itself referenced “other obligations arising thereunder,” which served as constructive notice to any subsequent encumbrancer, like Tady-Y’s assignor, to investigate the full terms of the first mortgage. By failing to examine the PNB’s records, the second mortgagee assumed the risk. The subsequent crop loans, evidenced by registered chattel mortgages, validly formed part of the secured obligations. Since the total debt of P9,579.08 exceeded the auction proceeds of P5,093.45, no surplus remained for application to the second mortgage. Consequently, PNB had no clear legal duty to deliver any amount to Tady-Y, and mandamus did not lie.